Bonds losing appeal as inflation set to pounce

Government bonds have proved just as popular as Daniel Craig's version in recent years (Source: Getty)

Jake Cordell

Yields on UK government debt have hit their highest level since the EU referendum as inflation fears grow and the pound remains under pressure.

The benchmark 10-year bond now comes with a yield of more than one per cent in the UK, after hitting a record low of 0.52 per cent over the summer as investors scrambled into the safety of government debt.

Borrowing costs in both the Eurozone and the US have also climbed higher, prompting analysts to once again call the top of the bond market.

"This year should mark the end of global deflation worries, as headline inflation gradually recovers to near-target levels in the US and the UK" said JP Morgan's Stephanie Flanders.

BMI Research, part of the Fitch Group, added: "We continue to see higher inflationary pressures building across developed markets, which we expect to result in higher bond yields in the Eurozone, the UK and Japan."

German 10-year yields are also back in the black at 0.05 per cent after languishing below zero for much of September, and US treasuries are also climbing higher.

JP Morgan's Flanders added: "Central banks are now very focused on the negative side effects of super-low long-term interest rates, so I don't think investors should be betting on sovereign yields in the Eurozone or Japan slipping further and further into negative territory."